The oil and diesel markets saw their fourth consecutive weekly loss last week after large sell offs on Thursday. Brent Crude fell to $77.30 (it’s lowest level since June) amid weaking demand caused by continued recessionary fears in many of the world’s largest economies. A key factor here is China’s slow economic recovery and it’s highly indebted property sector.
British consumers were also boosted with lower fuel prices due to a weakening in the US Dollar following positive inflation news in the US. With inflation seemingly under control it is likely that interest rates have peaked across the Atlantic, pushing demand for USD down. Sterling currently trades at $1.2488 (up from $1.2278 last week) after achieving it’s highest rate since September last Tuesday. As Oil and fuels are traded in USD, this increase in the relative value of Sterling should see cheaper fuel prices in the UK this week.
Brent Crude rebounded over the weekend following a 4% rise on Friday (currently trading at $81.60). Many analysts believe that Thursday’s sell off was likely overdone given the continuation of the Israel/Hamas conflict and the ever-looming OPEC+ supply cuts. OPEC+ are due to meet again this month and with Brent crude prices hovering at the $80/barrel mark, OPEC+ may choose to introduce further supply cuts in an attempt to keep prices and profits high. JP Morgan analyst Christyan Malek believes that OPEC+ is set to increase supply cuts ‘in order to get ahead of potential weaknesses in the first half of next year’.
Andrew Bailey, Governor of the Bank of England, is also due to speak today following positive inflation news last week. Following seven months of double digit inflation, the UK has reduced the CPI to 4.6% in October, meaning further interest rate hikes are now less likely. Should the Bank of England look to reduce rates in 2024, the economy will see in a boost in aggregate demand, providing a boost to the oil and fuel markets.